February did not bring much cheer to the markets. The much anticipated stimulus package announced by the U.S. government did not bring any relief to the market. On the domestic front, the interim budget was not of much help either. It was at the fag end of the month that the bulls got a breather when the government announced a reduction in excise duty and service tax, each by 2%, as part of the third round of the stimulus packages to improve the slowing demand in the economy.
Two asset classes were in focus- Equity for its free fall and gold for its continuous rise. The Sensex shed 5.65% in February while gold touched a record high of Rs 15,705 (February 24, 2009) on the back of increasing demand.
Naturally, Gold ETFs were the clear winner of the month. The category delivered an impressive return of 6.77%. In 2008, the category posted a return of 25.01% and was the best performing category of the year.
The best & the worst
In the equity space, the sector that posted a positive return was Auto with the BSE Auto rising 7.29% in the month. The equity auto category returned 3.26% on an average and its two schemes--JM Auto Sector Fund and UTI Transportation and Logistics delivered 2.81% and 1.54% respectively. Though the category returned significantly, there isn’t much investor interest involved with the category managing assets of just Rs 28.6 crore.
All other equity categories remained in red. The BSE Realty shed the most by falling 15.28% followed by BSE Bankex, which fell by 13.47% during the month. The equity-banking category continued to bear the brunt of the global financial crisis as the category shed 7.52% during the month. Amongst funds with the banking theme, JM Financial Services Sector was the worst performer delivering a return of -13.6% while Sahara Banking and Financial Services Fund curtailed its fall to -4.7%.
The equity diversified category, which manages assets worth Rs 68,369 crore across 181 open ended funds (January 31, 2009), delivered -2.4%. Only 13 funds were able to restrict their fall below the category’s fall and only 2 could keep their returns in the positive territory--Kotak MNC (0.83%) and Escorts Power and Energy Fund (0.42%).
The debt scenario
The Debt Medium Term and Gilt Medium and Long Term continued to post negative returns. The Debt Medium Term category posted an average return of -0.25% in February against -2.37% in January. The Gilt Medium and Long term also fell by 1.66% in February, much lower than January’s fall of 6.27%.
But, when compared to December, Debt Medium Term category delivered 7.21% and Gilt Medium & Long Term, 12.4%.
From the second half of 2008, the central bank began cutting interest rates which resulted in reduced bond yields, which raised prices. As the year 2009 began, the government’s fiscal deficit rose significantly and it decided to raise money from the market by issuing more bonds. This increased supply led to a rise in the bond yields and a fall in their prices. In the beginning of 2009, the yield of 10-year gilt paper was at 5.23% which went up to 6.40% by February end.
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